AAPE Vol. 1

P APER 3
Volume – I

This study material has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to enable
them to obtain knowledge and skills in the subject. Students should also supplement their
study by reference to the recommended text books. In case students need any
clarifications or have any suggestions to make for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner useful for
the students. However, the study material has not been specifically discussed by the
Council of the Institute or any of its Committees and the views expressed herein may not
be taken to necessarily represent the views of the Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this material.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this book may be reproduced, stored in retrieval system, or
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Revised Edition : January, 2012
Price : ` 300/-
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A WORD ABOUT STUDY MATERIAL
Auditing is an important area of core competency of the Chartered Accountancy profession.
Millions of investors, potential investors and other stakeholders of an organization repose faith
and confidence on the auditor’s report and the Indian Chartered Accountancy Profession has aptly served the society and contributed for the national growth and development. This
became possible simply because of adherence to the strict norms of professional self-
discipline and pursuance of the global class auditing and assurance practices.
On the wake of many corporate failures in the USA, Sarbanes–Oxley Act was enacted which encompasses newer ideas of internal control and Peer review apart from reinforcing old best
practices of auditing and assurance. Enhanced role of the auditors has also been perceived at
home in the context of implementing code of corporate governance and various fiscal
legislations.
Students of the Final level must appreciate these developments, understand and apply the
same even in their day to day work. Students should in the first instance focus on learning of
auditing concepts, procedures and techniques from the study material. The knowledge being
so derived may be related by the students to the practical work in the field of auditing which
they do as part of their training. Auditing is largely a practical and application oriented
discipline.
Students should learn the auditing concepts and techniques as also their intricacies purely for
the purposes of applying them in their audit work. The auditing knowledge inputs provided to
the students by the Institute through the study material and other publications and the
practical training inputs provided by the audit firms during the articleship training stage
compliment one another. Students should, as part of their articleship training, involve
themselves deeply in the professional audit work done by their principals, for the purpose of
getting an intense practical knowledge and learning skills in Auditing.
Here are few tips for examination preparation. Students must familiarise themselves with the
syllabus in detail. Since they are expected to exhibit “advanced knowledge”, it is absolutely
essential that they should be able to apply theoretical knowledge to diverse practical
situations. Therefore, students must study intensively SAs, Accounting Standards, relevant provisions of the Companies Act, 1956, case laws, etc. A good knowledge of these would help
you to tackle practical-oriented questions in the examination. The Institute’s professional
pronouncements like Accounting Standards, Statements on Standard Auditing Practices and Guidance Notes on various matters relating to Accountancy, Auditing and Taxation etc. are of
critical importance to CA Final students as they form the base of their knowledge and its
application to practical problems in the relevant subject areas. Students are expected to have a good insight of the contents of the above publications for their immediate purpose of
examinations and also otherwise in their day to day work they are expected to make use of
them. Some of these publications have been incorporated at the appropriate places in the

pronouncements issued by the Institute. As a matter of practical convenience, all important
guidance notes and SAs have been covered at appropriate places. Some important guidance notes have been covered in the Advanced Accounting study material as well. Students must
read monthly Journal “The Chartered Accountant” and the students’ newsletter “The Chartered
Accountant Student” regularly. The Insti tute’s monthly Journal “The Chartered Accountant” is a valuable source of articles on topical interest, relevant notifications and clarifications by
Government of India, RBI, SEBI, etc., information on contemporary developments in
Accounting, Finance, Audit ing and Corporate and Tax Laws, etc. Students, especially Final students, should regularly keep in touch with the Journal to enrich their knowledge base,
relevant for examination and other purpose. “The Chartered Accountant Student”, the
students’ monthly newsletter, published by the Board is another regular channel of
communication with students which contributes to the fund of knowledge required of CA
students, through articles, case studies, reports, academic updates, announcements, etc.
The Study Material is divided into three volumes for ease of handling by the students. Volume I contains Chapters 1 – 17 and Volume – 2 contains Chapters 18 – 22. Appendices containing text of Auditing Standards and Guidance Notes (G.Ns. are given in CD) have also been included in Volume II. Volume III of the Study Material comprises of Practice Manual. Small illustrations have been incorporated in each chapter/unit to explain the concepts/principles covered in the chapter/unit. Another helpful feature is the addition of self-examination questions which will help the students in preparing for the Final Course Examination.
This study material is divided into twenty two chapters covering in details principles of
Auditing, Standards on Auditing issued by the ICAI, Salient features of Sarbanes Oxley Act, 2002 with special reference to reporting on internal control as a part of Risk Assessment and
Internal Control, specific audit issues classified by organizations like Company Audit, audit of
Banks, Audit of General Insurance Business, Audit of Co-Operative Societies, NBFCs and Audit of Public Sector Undertakings, special audit issues like audit under Fiscal Laws, role of
auditor under clause 49 of the Listing Agreement, Audit of Consolidated Financial Statements,
Investigation and Due Diligence. In Chapter 21, the latest concept of Peer Review has been explained in details, which are considered as an important step towards maintenance and
improvement of audit quality. In Chapter 22 Professional Ethics are dealt with which is
regarded as a foundation to the audit function, which is essentially developed on the
foundation of ethical norms, which has so far brought name and fame to the profession. All
students of Final course should read this chapter with sincerity and imbibe the norms
explained. These norms should be the guiding force while they will work as a chartered
accountant.

This study material has been revised in view of Standards on Auditing, Code of Ethics, NBFC
guidelines etc. by Auditing team of experts under the guidance of Shri. Vijay Kapur, Director of Studies. We also acknowledge the valuable contribution made by CA Kamal Garg who has
devoted considerable time in reviewing and making the Study Material more useful.
We would welcome suggestions to make this study material more useful to the students.
In case of any doubt, students are welcome to write to the Director of Studies, The
Institute of Chartered Accountants of India, A 29, Sector 62, Noida 201301.
Happy Reading and Best Wishes!

(One Paper- Three hours - 100 marks)
Level of Knowledge: Advanced knowledge
Objectives:
(a) To gain expert knowledge of current auditing practices and procedures and apply them in
auditing engagements,
(b) To develop ability to solve cases relating to audit engagements.
Contents:
Auditing and Assurance Standards (AASs); Statements and Guidance Notes on Auditing
issued by the ICAI; Significant differences between Auditing and Assurance Standards
and International Standards on Auditing.
2. Audit strategy, planning and programming
Planning the flow of audit work; audit strategy, planning programme and importance of
supervision: review of audit notes and working papers; drafting of reports; principal’s
ultimate responsibility; extent of delegation; control over quality of audit work; reliance on
the work of other auditor, internal auditor or an expert.
3. Risk Assessment and Internal Control
Evaluation of internal control procedures; techniques including questionnaire, flowchart;
internal audit and external audit, coordination between the two.
4. Audit under computerized information system (CIS) environment
Special aspects of CIS Audit Environment, need for review of internal control especially
procedure controls and facility controls. Approach to audit in CIS Environment, use of
computers for internal and management audit purposes: audit tools, test packs,
computerized audit programmes; Special Aspects in Audit of E-Commerce Transaction.
5. Special audit techniques
verification of assets, direct confirmation of debtors and creditors
(b) Analytical review procedures
6. Audit of limited companies
Statutory requirements under the Companies Act 1956; Audit of branches: joint audits;
Dividends and divisible profits % financial, legal, and policy considerations.
7. Rights, duties, and liabilities of auditors; third party liability.
8. Audit reports; Qualifications, notes on accounts, distinction between notes and qualifications, detailed observations by the statutory auditor to the management vis-a-vis
obligations of reporting to the members.
9. Audit Committee and Corporate Governance
10. Audit of Consolidated Financial Statements, Audit Reports and Certificates for Special
Purpose engagements; Certificates under the Payment of Bonus Act, import/export control authorities, etc.; Specific services to non-audit clients; Certificate on Corporate
Governance.
11. Special features of audit of banks, insurance companies, co-operative societies and non-
banking financial companies.
12. Audit under Fiscal Laws, viz, Direct and Indirect Tax Laws.
13. Cost audit
14. Special audit assignments like audit of bank borrowers, audit of stock and commodity
exchange intermediaries and depositories; inspection of special entities like banks,
financial institutions, mutual funds, stock brokers.
15. Special features in audit of public sector companies. Directions of Comptroller and
Auditor General of India under Section 619; Concepts of propriety and efficiency audit.
16. Internal audit, management and operational audit Nature and purpose, organisation,
audit programme, behavioural problems; Internal Audit Standards issued by the ICAI;
Specific areas of management and operational audit involving review of internal control,
purchasing operations, manufacturing operations, selling and distribution, personnel
policies, systems and procedures. Aspects relating to concurrent audit.
17. Investigation and Due Diligence.
18. Concept of peer review
19. Salient features of Sarbanes – Oxley Act, 2002 with special reference to reporting on
internal control.
20. Professional Ethics
Code of Ethics with special reference to the relevant provisions of The Chartered
Accountants Act, 1949 and the Regulations thereunder.

CONTENTS
CHAPTER 1 : AUDITING STANDARDS, STATEMENTS AND GUIDANCE NOTES - AN OVERVIEW
1.1 Introduction......... .......................... .......................... .......................... ............ 1.1
1.3 Auditing and Assurance Standards Board – Scope and Functions.......... .......... 1.2
1.4 Framework of Standards and Guidance Notes on Related Services ................. 1.4
1.5 Auditing Standards ........................ ......................... ......................... .............. 1.6
1.6 Guidance Notes..................... .......................... .......................... .................. 1.21
1.7 Guidance Note(S) on Related Services............. ........................... ................. 1.31
1.8 Authority Attached to the Documents issued by the Institute .......................... 1.31
CHAPTER 2: AUDIT STRATERGY, PLANNING AND PROGRAMMING
2.1 Commencing an Audit... ........................ ......................... ......................... ....... 2.1
2.2 Formulating an Audit Programme .......................... .......................... ............... 2.5
2.3 Designing Audit Strategy............................................ ......................... ......... 2.17
2.4 Using the work of an Expert ....................... .......................... ........................ 2.21
2.5 Using the work of Internal Auditor..................................... .......................... .. 2.24
2.6 Using the work of another Auditor ................................................................ 2.24
2.7 Principal’s ultimate Responsibility ......................... ........................... ............ 2.24
2.8 Reliance on the Management or other Certificates by the Auditor .................. 2.24
2.9 Written Representations .............................................................................. 2.26
2.11 Control of Quality of Audit Work ........................ .......................... ................. 2.29

3.1 Introduction......... .......................... .......................... .......................... ............ 3.1
3.3 Components of Internal Control ......................... .......................... ................... 3.5
3.4 Review of the System of Internal Control ........................ .......................... ...... 3.7
3.5 Methods of Recording ......................... ......................... ......................... ......... 3.9
3.6 Evaluation of Internal Control .......................... .......................... ................... 3.19
3.7 Internal Control and Risk Assessment ........................... ........................... .... 3.20
3.8 Internal control in Small Business Enterprises............................................... 3.26
3.9 Reporting to clients on Internal Control Weaknesses ........................... .......... 3.26
Annexure I – Sample Internal Control Questionnaire… ……………………………………..3.28
Annexure II -The Sarbanes – Oxley Act of 2002 ....................... ………………………………3.41
CHAPTER 4: AUDIT UNDER COMPUTERISED INFORMATION SYSTEM (CIS) ENVIRONMENT
4.1 Introduction........ .......................... .......................... .......................... ............. 4.1
4.2 Scope of Audit in a CIS Environment ........................ ........................... ........... 4.1
4.3 Impact of changes on Business Processes (for shifting from manual to electronic
medium)............................. ........................ ......................... ......................... . 4.2
4.5 Types of Computer Systems ...................... .......................... .......................... 4.6
4.6 Effect of Computers on Internal Controls ......................... .......................... ... 4.11
4.7 Effects of Computers on Auditing ........................... ........................... ........... 4.13
4.8 Internal controls in a CIS environment ........................... ........................... .... 4.14
4.9 Consideration of Control Attributes by the Auditors ......................... .............. 4.15
4.10 Internal control requirement under CIS Environment ............................ ......... 4.16
4.11 Approach to Auditing in a CIS Environment.................... .......................... ..... 4.17
4.12 Review of Checks and Controls in a CIS Environment ......................... .......... 4.20
4.13 Auditors Involvement in the Clients System Development and Documentation
Control.................. ......................... ......................... ......................... ........... 4.27

5.1 Introduction......... .......................... .......................... .......................... ............ 5.1
5.4 Audit Risk .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 5.23
5.5 Risk-Based Audit ......................... .......................... .......................... ............ 5.26
CHAPTER 6: THE COMPANY AUDIT
6.1 Introduction..... .......................... .......................... .......................... ................ 6.1
6.3 Remuneration................ ......................... ......................... ......................... ... 6.11
6.5 Audit of Branches ......................... .......................... .......................... ........... 6.23
6.6 Reliance on the Work and Report of the other Auditor .............................. ..... 6.26
6.7 Joint Audit...... .......................... .......................... .......................... ............... 6.28
6.8 Gist of Important Circulars ....................... .......................... .......................... 6.30
6.9 Compliance with Relevant Provisions of the Companies Act, 1956 ................. 6.35
6.10 Auditor’s Duty under Companies Act, 1956 ....................... .......................... .. 6.41
6.11 Final Accounts Preparation and Presentation........................... ..................... 6.46
6.12 Significance of True and Fair ....................... .......................... ...................... 6.48
6.13 Divisible Profits, Dividends and Reserves .......................... .......................... . 6.49
6.14 Depreciation..... .......................... .......................... .......................... ............. 6.71
7.1 Nature of Auditor’s Liability ..................... ......................... ......................... ..... 7.1
7.2 Professional Negligence .......................... .......................... .......................... .. 7.3
7.3 Cases Concerning the Civil Liability of Auditors for Negligence... ................... 7.14
7.4 Civil Liabilities under the Companies Act ......................... ........................... .. 7.16

7.6 Cases Concerning the Misconduct of Auditors under the
Chartered Accountants Act .......................................................................... 7.24
CHAPTER 8: AUDIT REPORT
8.2 The Auditor’s Report on Financial Statements............................... .................. 8.4
8.3 Statement on Qualifications in the Auditor’s Report .......................... ............. 8.21
8.4 Distinction between Audit Report and Certificate............................................ 8.38
8.5 Audit Reports and Certificates for Special Purposes ......................... ............. 8.40
8.6 Special Considerations—Audits of Financial Statements Prepared In Accordance
With Special Purpose Frameworks (SA 800) ......................... ........................ 8.44
8.7 Special Considerations—Audits of Single Financial Statements and Specific
Elements, Accounts or Items of A Financial Statement (SA 805) ................... 8.46
8.8 Engagements to Report on Summary Financial Statements (SA 810) ............ 8.49
8.9 Review of Interim Financial Information Performed By the Independent Auditor of
the Entity (SRE 2410) ....................... .......................... .......................... ..... 8.56
8.10 Audit of Company Prospectuses..... .......................... .......................... .......... 8.69
8.11 Audit Reports/Certificates on Financial Information in Offer Documents ......... 8.72
8.12 Statement on the Companies (Auditor’s Report) Order, 2003 ......................... 8.85
CHAPTER 9: AUDIT COMMITTEE AND CORPORATE GOVERNANCE
9.1 Introduction......... .......................... .......................... .......................... ............ 9.1
9.3 Management’s Responsibility .......................... .......................... ..................... 9.3
9.4 Audit Committee under Clause 49 ........................... ........................... ............ 9.3
9.5 Functions of the Audit Committee........... .......................... .......................... .... 9.6
9.6 Review of Information by Audit Committee............ ........................... ............... 9.6
9.7 Audit Committee under Section 292 A of the Companies Act, 1956 .................. 9.7
9.8 Audit Committee – A Comparative ......................... .......................... ............... 9.8

9.9 Role of Auditor in Audit Committee and Certification of
Compliance of Conditions of Corporate Governance............................... ....... 9.10
9.10 Disclosures ........................ ......................... ......................... ....................... 9.22
9.12 Auditors’ Certificate ......................... .......................... .......................... ........ 9.24
10.1 Introduction..... ......................... ......................... ......................... ................. 10.1
10.2 Definitions.............. ......................... ......................... ......................... .......... 10.2
10.3 Responsibility of Parent ....................... ......................... ........................ ....... 10.2
10.4 Responsibility of the Auditor of the Consolidated Financial Statements .......... 10.2
10.5 Audit Considerations ................................................................................... 10.3
10.7 Special Considerations ........................ ......................... ......................... ...... 10.7
10.8 Management Representations ....................... ......................... ..................... 10.10
10.9 Reporting ...................... ......................... ......................... ......................... ..10.10
10.10 When the Parent’s Auditor is also the Auditor of its Subsidiaries ................... 10.11
10.11 When the Parent’s Auditor is not the Auditor of its Subsidiary (ies) ...............10.11
CHAPTER 11: AUDIT OF BANKS
11.1 Introduction...... ......................... ......................... ........................ ................. 11.1
11.5 Audit of Accounts ........................................................................................ 11.6
11.6 Internal Control in Certain Selected Areas ........................ .......................... .11.29
11.7 Verification of Assets and Balances.......................... ........................... ........11.34
11.8 Capital Adequacy ........................ ......................... ......................... ........... 11.130
11.9 Concurrent Audit ....................... ......................... ......................... ............. 11.152
12.1 Introduction......... ......................... ........................ ......................... .............. 12.1
12.3 Insurance Regulatory and Development Authority (IRDA) Act, 1999 and
Regulations Framed there under ........................ .......................... ................ 12.5
12.4 Features of Accounting System of Insurance Companies.. ............................. 12.5
12.5 Audit of Accounts ....................... .......................... .......................... ............12.16
12.6 Specific Control Procedures related to General Insurance Business..............12.19
12.7 Audit Procedures ........................ .......................... .......................... ............12.20
12.9 Reinsurance...............................................................................................12.34
12.13. Compliance with Corporate Governance Guidelines ............................ .........12.43
CHAPTER 13: AUDIT OF CO-OPERATIVE SOCIETIES
13.1 Introduction..... ......................... ......................... ......................... ................. 13.1
13.3 Special features of Co-operative Audit............. ........................... .................. 13.6
13.4 Right and Duties of Co-operative Auditors ........................ ........................... . 13.9
13.5 Form of Audit Report ................................................................................... 13.9
13.6 Audit, Inquiry and Inspection of Multi-State Co-operative Societies ...............13.10
CHAPTER 14: AUDIT OF NON-BANKING FINANCIAL COMPANIES
14.1 Introduction......... ......................... ........................ ......................... .............. 14.1
14.5 Classification of Frauds by NBFC ........................... ............................ ........14.17

15.1 Introduction......... ......................... ........................ ......................... .............. 15.1
15.3 Tax Audit under section 44AB ......................... .......................... ................... 15.5
15.4 Audit Provisions under Vat Law....................... .......................... ..................15.45
CHAPTER 16: COST AUDIT
16.6 General Features of Cost Records .......................... ........................... .......... 16.8
16.7 Cost Audit under the Companies Act ..................... ......................... .............16.14
16.8 Steps in Cost Audit ....................... .......................... .......................... ..........16.17
16.9 Right and Duties of Cost Auditor .......................... ............................ ...........16.22
CHAPTER 17: SPECIAL AUDIT ASSIGNMENTS
17.1 Audit of Members of Stock Exchanges .......................... ............................ ... 17.1
17.2 Functioning of Stock Exchanges................. ........................ ......................... . 17.2
17.3 Rolling Settlement ........................ .......................... .......................... ..........17.12
17.7 Conduct of Audit.............. .......................... .......................... ....................... 17.16
17.8 Auditor’s Report ....................... .......................... .......................... ..............17.23
17.9 Audit of Mutual Funds.......................... .......................... .......................... ...17.24
17.10 Audit of Depositories ........................ .......................... .......................... ......17.29
17.11 Certification Pursuant to Companies (Acceptance of Deposit) Rules, 1975 ....17.31
17.12 Environmental Auditing ..................... ......................... ......................... ........17.34
Note: Chapters 18-22 of Advanced Auditing and Professional Ethics and Appendices I
are in Volume-2.
GUIDANCE NOTES – AN OVERVIEW
1.1 Introduction
The past decade has been one of unprecedented change in the global economy and capital
markets. Key aspects of the current business environment include a globalized, highly
competitive, expanding economy; explosive growth in the development and use of technology;
dramatic increases in new economy service- and technology-based businesses with
predominantly intangible assets; unparalleled expansion in the number of public entities; large increases in the number of individuals who directly or indirectly own equity securities; and
unprecedented growth in the market value of those securities.
The expanded use of technology in both the operating and financial systems of companies
also has significantly affected the audit environment, forcing audit firms to recruit, train and deploy a large number of information technology specialists to support their audit efforts. It
also has caused firms to reconsider their audit methods and techniques in an effort to harness
technology to improve audit efficiency and effectiveness.
In the changing environment, it is obvious that a professional accountant should to adhere to standards and procedures laid down by the professional accountancy bodies of which he is a
member while discharging his duties in a responsible manner. In this direction, the role of a
professional accounting body is to lay down such standards and procedures with the aim of
providing guidance to members. The Institute of Chartered Accountants of India (ICAI) has
been formulating auditing and accounting standards for the guidance of its members on its
own volition in the larger interests of the society. In this chapter, we provide an overview of
auditing standards and guidance notes issued by the Institute from time to time. Though these
standards and guidance notes have been dealt at appropriate places, the main purpose is to
acquaint and inculcate appreciation on the part of students in a focused manner as to
significance of the standards in their day to day auditing activities. Towards the end of the
Chapter, the clarification issued by the Council of the Institute is also included, which would go
a long way in understanding as well as significance to the mandatory status of “Statements”
and “Standards”.
1.2 Historical Retrospect
The Institute, since its inception, has been committed to research in the field of accountancy.
As early as in 1955, the Council set up the Research Committee. The Council at that point of

1.2 Advanced Auditing and Professional Ethics
the problems faced by membership at large and with a view to ensuring the highest of
traditions and technical competence in the discharge of the duties by chartered accountants.
As back as in 1964, the Council published the “Statement on Auditing Practices” as prepared
by the Research Committee not only for the benefit of its members but also for others outside
the profession, who might be interested in this subject. It was hoped that this Statement would
provide valuable guidance in the performance of audits, particularly of companies. The Council of the Institute fully realised that techniques of accounting and auditing had undergone and
were undergoing important changes. Since the members were expected to keep pace with
recent developments, this Statement attempted to set out practices which were generally accepted in other countries and which the Council considered desirable in the light of
prevailing circumstances in India. The issuance of the Statement on Auditing Practices might
be considered as a path break as far as establishing sound auditing practices is concerned.
The Statement was further revised in 1968 and 1977.
Prior to establishment of the Auditing Practices Committee (APC), the Research Committee
issued the following Statements in Auditing:
♦ Statements on Qualifications in Auditor’s Report
♦ Statement on the Manufacturing and Other Companies (Auditor’s Report) Order,
1975/1988 (Issued under Section 227(4A) of the Companies Act, 1956)
♦ Statement on Responsibilities of Joint Auditors
♦ Statement on Payments to Auditors for Other Services
1.3 Auditing and Assurance Standards Board – Scope and Functions
The Following are the important points as regards scope and functions of Auditing and
Assurance Standards Board –
1.3.1 Setting up of AASB - The International Federation of Accountants (IFAC) came into existence in 1977 and constituted International Auditing Practices Committee (IAPC) to
formulate International Auditing Guidelines. These guidelines were later on converted into
International Standards on Auditing (ISA). Considering the developments in the field of auditing at international level, the need for issuing Standards and Guidance Notes in tandem
with international standards but conforming to national laws, customs, usages and business
environments was felt. With this objective, our Institute constituted the Auditing Practices
Committee (APC) on September 17, 1982, to spearhead the new framework of Statements on
Standard Auditing Practices (SAPs) and Guidance Notes (GNs) inter alia to replace various
chapters of the old omnibus Statement on Auditing Practices issued in 1964.
In July, 2002, the Auditing Practices Committee has been converted into an Auditing and
Assurance Standards Board by the Council of the Institute, to be in line with the international

Auditing Standards, Statements and Guidance Notes – An Overview 1.3
Assurance Standards (AASs). As per the Preface to Standards on Quality Control Auditing
Review, other Assurance and Related Services w.e.f. April 1, 2008, the nomenclature of AASs under the authority of the Council are collectively known as the Engagement Standards and
Quality Control Standards which include the following:
(a) Standards on Auditing (SAs), to be applied in the audit of historical financial information.
(b) Standards on Review Engagements (SREs), to be applied in the review of historical
financial information.
(c) Standards on Assurance Engagements (SAEs), to be applied in assurance
engagements, dealing with subject matters other than historical financial information.
(d) Standards on Related Services (SRSs), to be applied to engagements involving
application of agreed-upon procedures to information, compilation engagements, and other related services engagements, as may be specified by the ICAI.
(e) Standard on Quality Control which contains extensive requirements in relation to establishment and maintenance of a system of quality control in the audit firms as well as
even for sole practitioners.
1.3.2 Scope and Functions of AASB - The main function of the AASB is to review the existing
auditing practices in India and to develop Statements on Standards on Auditing (SAs) so that
these may be issued by the Council of the Institute. While formulating the SAs, the AASB
takes into consideration the ISAs issued by the IAPC, applicable laws, customs, usages and
business environment in India. The SAs are issued under the authority of the Council of the
Institute. The AASB also issues Guidance Notes on the issues arising from the SAs wherever necessary. The AASB has also been entrusted with the responsibility to review the SAs at
periodical intervals.
1.3.3 Scope of SAs - The SAs apply whenever an independent audit is carried out; that is, in
the independent examination of financial information of any entity, whether profit oriented or
not, and irrespective of its size, or legal form (unless specified otherwise) when such an
examination is conducted with a view to expressing an opinion. The SAs may also have
application, as appropriate, to other related functions of auditors. Any limitation on the
applicability of a specific SA is made clear in the introductory paragraph of the SA.
1.3.4 Procedure for issuing SAs - Broadly, the following procedure is adopted for the
formulation of SAs:
♦ The AASB determines the broad areas in which the SAs need to be formulated and the
priority in regard to the selection thereof.
♦ In the preparation of SAs, the AASB is assisted by Study Groups constituted to consider
specific subjects. In the formation of Study Groups, provision is made for participation of
a cross-section of members of the Institute.
♦ On the basis of the work of the Study Groups, an exposure draft of the proposed SA is
prepared by the Committee and issued for comments by members of the Institute.

♦ The Council of the Institute considers the final draft of the proposed SA, and, if
necessary, modifies the same in consultation with the AASB. The SA is then issued
under the authority of the Council.
1.3.5 Compliance with the SAs - While discharging their attest function, it is the duty of the
members of the Institute to ensure that the SAs are followed in the audit of financial information covered by their audit reports. If for any reason a member has not been able to
perform an audit in accordance with the SAs, his report should draw attention to the material
departures therefrom. Auditors are expected to follow SAs in the audits commencing on or
after the date specified in the Standard.
1.3.6 Linkage between SAs and Disciplinary Proceedings - The SAs (as well as other
statements on auditing) represent the generally accepted procedure(s) of audit. As such, a
member who does not perform his audit in accordance with these statements and fails to disclose the material departures therefrom, becomes liable to the disciplinary proceedings of
the Institute under clause (9) of Part I of the Second Schedule to the Chartered Accountants
Act, 1949 (as amended by the Chartered Accountants (Amendment) Act, 2006), which
specifies that a member of the Institute engaged into practice shall be guilty of professional
misconduct if he “fails to invite attention to any material departure from the generally accepted
procedure of audit applicable to the circumstances”.
1.4 Framework of SES and Guidance Notes on Related Services
Framework of Standards on Auditing and Guidance Notes on Related Services issued recently
distinguishes audits from related services. Related services comprise reviews, agreed-upon
procedures and compilations. As illustrated in the diagram below, audits and reviews are
designed to enable the auditor to provide high and moderate levels of assurance respectively,
such terms being used to indicate their comparative ranking. Engagements to undertake
agreed-upon procedures and compilations are not intended to enable the auditor to express
assurance.
Procedures
Compilation
Assurance in the above context refers to the auditor's satisfaction as to the reliability of an
assertion being made by one party for use by another party. To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted and expresses a
conclusion. The degree of satisfaction achieved and, therefore, the level of assurance which may
be provided is determined by the procedures performed and their results. In an audit engagement, the auditor provides a high, but not absolute, level of assurance (i.e. reasonable level of
assurance) that the information subject to audit is free of material misstatement expressed
positively in the audit report. In a review engagement, the auditor provides a moderate level of assurance that the information subject to review is free of material misstatement. This is expressed
in the form of negative assurance (also known as limited assurance). For agreed-upon procedures,
auditor simply provides a report of the factual findings, no assurance is expressed. Instead, users
of the report draw their own conclusions from the auditor's work. In a compilation engagement,
although the users of the compiled information derive some benefit from the involvement of a
member of the Institute, no assurance is expressed in the report. Objective of an audit is to enable
the auditor to express an opinion whether the financial statements are prepared, in all material
respects, in accordance with an identified financial reporting framework "give a true and fair view".
Absolute assurance in auditing is not attainable as a result of such factors as the need for
judgement, the use of test checks, the inherent limitations of any accounting and internal control
systems and the fact that most of the evidence available to the auditor is persuasive, rather than
conclusive, in nature. The objective of a review of financial statements is to enable an auditor to
state whether, on the basis of procedures which do not provide all the evidence that would be
required in an audit, anything has come to the auditor's attention that causes the auditor to believe
that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework. While a review involves the application of audit skills and
techniques and the gathering of evidence, it does not ordinarily involve on assessment of
accounting and internal control systems, tests of records and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation, the auditor
attempts to become aware of all significant matters, the procedures of a review make the
achievement less likely than in an audit engagement, thus the level of assurance provided in a review report is correspondingly less than that given in an audit report. In an engagement to
perform agreed-upon procedures and auditor is engaged to carry out those procedures of an audit
nature to which the auditor and the entity and any appropriate third parties have agreed and to
report on factual findings. The report is restricted to those parties that have agreed to the
procedures to be performed since others, unaware of the reasons for the procedures, may
misinterpret the results. In a compilation engagement, a member of the Institute is engaged to use
accounting expertise as opposed to auditing expertise to collect, classify, and summaries financial
information. The procedures employed are not designed and do not enable the member to express
any assurance on the financial information. However, users derive some benefit as a result of the
member's involvement because the service has been performed with due professional skill and
care. An auditor is associated with financial information when the auditor attaches a report to that

1.5 A brief summary of each SA issued by AASB is given below:
1.5.1 Standard on Quality Control (SQC) 1, “Quality Control for Firms that Perform Audits and
Reviews of Historical Financial Information, and Other Assurance and Related Services
Engagements”
It is a mother Standard for all other Standards and is all pervasive Standard in respect of
quality control. As the name suggests, the SQC 1 contains extensive requirements in relation
to establishment and maintenance of a system of quality control (QC) in the audit firms as well as even for sole practitioners. The important elements of a system of quality control discussed
by the Standard include Elements of a System of Quality Control, Leadership Responsibilities
for Quality Within the Firm, Ethical Requirements – Independence, Acceptance and Continuation of Client Relationships and Specific Engagements, Human Resources -
Assignment of Engagement Team, Engagement Performance - Consultation, Differences of
Opinion, Engagement Quality Control Review and Documentation of the Engagement Quality
Control Review - Engagement Documentation.
The Standard is recommendatory from April 1, 2008 and mandatory from April 1, 2009.
1.5.2 SA 200(Revised): Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with Standards on Auditing-it establishes the independent auditor’s
overall responsibilities when conducting an audit of financial statements in accordance with
SAs. Specifically, it sets out the overall objectives of the independent auditor, and explains the
nature and scope of an audit designed to enable the independent auditor to meet those
objectives. It also explains the scope, authority and structure of the SAs, and includes
requirements establishing the general responsibilities of the independent auditor applicable in
all audits, including the obligation to comply with the SAs. It has to be adapted as necessary
in the circumstances when applied to audits of other historical financial information. This SA
requires that the auditor to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error.
The SAs require that the auditor exercise professional judgment and maintain professional
skepticism throughout the planning and performance of the audit and, among other things:
• Identify and assess risks of material misstatement, whether due to fraud or error, based
on an understanding of the entity and its environment, including the entity’s internal
control (further expounded in SA 315 and SA 330).
• Obtain sufficient appropriate audit evidence about whether material misstatements exist,
through designing and implementing appropriate responses to the assessed risks (further
expounded in SA 500 and SA 501).
• Form an opinion on the financial statements based on conclusions drawn from the audit
evidence obtained (further expounded in SA 700, SA 705, SA 706 and SA 720).
This SA is effective for audits of financial statements for periods beginning on or after April 1,
2010.
1.5.3 SA 210(revised): Agreeing the Terms of Audit Engagements- It is a revised version of
the erstwhile Auditing and Assurance Standard (AAS) 26, “Terms of Audit Engagements” issued by the Institute in 2003. The revised Standard deals with the auditor’s responsibilities in
agreeing the terms of audit engagement with management and, where appropriate, those
charged with governance. SA 210 establishes certain preconditions for an audit, responsibility for which rests with management or those charged with governance. SA 210 also deals with
the requirements relating to preconditions for an audit, agreement on audit engagement terms,
recurring audits, acceptance of a change in the terms of the audit engagement and additional considerations in engagement acceptance. The appendices to revised SA 210 contain the
illustrative example of an audit engagement letter and the factors determining the acceptability
of general purpose frameworks.
2010.
1.5.4 SA 220 (Revised): Quality Control for an Audit of Financial Statements- SA 220 is a
revised version of the erstwhile Auditing and Assurance Standard (AAS) 17, “Quality Control
for Audit Work” issued by the Institute in 1999. The revised Standard deals with the specific
responsibilities of the auditor regarding quality control procedures for an audit of financial
statements. It also addresses, where applicable, the responsibilities of the engagement quality
control reviewer. Revised SA 220 also deals with the aspects relating to leadership
responsibilities for quality on audits, relevant ethical requirements, acceptance and
continuance of client relationships and audit engagement, assignment of engagement teams,
engagement performance, monitoring and documentation requirements.
2010
1.5.5 SA 230 (Revised): Audit Documentation: SA 230 is a revised version of the erstwhile
Auditing and Assurance Standard (AAS) 3, “Documentation” issued by the Institute in 1985.
The new Standard deals with the auditor’s responsibility to prepare audit documentation for an
audit of financial statements. SA 230 also deals with the requirements of timely preparation of
audit documentation, documentation of the audit procedures performed and audit evidence
obtained and assembly of the final audit file. SA 230 also outlines about vesting of property of working papers with the Auditor. SQC 1 read with SA 230 spells out two essential principles
viz. period of maintaining working papers and assembly of audit file by the auditor.
2009.
1.5.6 SA 240 (Revised): The Auditor’s Responsibility Relating to Fraud in an Audit of Financial Statements-The Standard adopts a risk-based approach to auditor’s responsibility relating to
fraud in an audit of financial statements. It, therefore, explains how the principles enunciated
in SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment” and SA 330, “The Auditor’s Responses to
Assessed Risks” would be applied in case of consideration of fraud in an audit of financial
statements.
2009.
1.5.7 SA 250 (Revised): Consideration of Laws and Regulations in an Audit of Financial
Statements- SA 250 is a revised version of the erstwhile Auditing and Assurance Standard
(AAS) 21, “Considerations of Laws and Regulations in an Audit of Financial Statements”
issued by the Institute in 2001. The revised Standard deals with the auditor’s responsibility to consider laws and regulations when performing an audit of financial statements. Revised SA
250 also deals with the effect of laws and regulations, responsibility of management for
compliance with laws and regulations, responsibility of the auditor, audit procedures and
reporting of identified or suspected non-compliance and documentation requirements.
2009.
1.5.8 SA 260 (Revised): Communication with Those Charged with Governance-SA 260 is a
revised version of the erstwhile Auditing and Assurance Standard (AAS) 27, “Communications of Audit Matters with Those Charged with Governance” issued by the Institute in 2003. This
Standard deals with the auditor’s responsibility to communicate with those charged with
governance in relation to an audit of financial statements. SA 260 also describes the
requirements regarding communication with those charged with governance and regarding
matter to be communicated and documentation required. This standard also spells out the
distinction between the Management and Those Charged with Governance.
2009.
1.5.9 SA 265: Communicating Deficiencies in Internal Control to Those Charged with
Governance and Management-SA 265 is a new Standard on Auditing which deals with the
auditor’s responsibility to communicate appropriately to those charged with governance and
management deficiencies in internal control that the auditor has identified in an audit of
financial statements. SA 265 defines the terms “Deficiency in internal control” and “Significant
deficiency in internal control”. This SA also deals with the aspects like determination of
whether deficiencies in internal control have been identified, whether it is significant
deficiencies in internal control and communicating deficiencies in internal control. This
standard somehow supplements the concept of ‘Letter of Weakness.’
2010.
1.5.10 SA 299: Responsibility of Joint Auditors - This SA deals with the professional
responsibilities which the auditors undertake in accepting appointments as joint auditors. The
SA, inter alia, lays down that the joint auditors should, normally, by mutual discussion, divide the audit work among themselves. The division of work among joint auditors as also the areas
of work to be covered by all of them should be adequately documented and preferably
communicated to the entity. The SA also states that each joint auditor is responsible only for the work allotted to him, whether or not he has prepared a separate report on the work

responsible. As per the SA, each joint auditor is entitled to assume that the other joint auditors
have carried out their part of the audit work in accordance with generally accepted audit procedures. It also deals with the reporting responsibilities of the joint auditors. This standard
very specifically states that the majority opinion would not be binding upon the other joint
auditor(s)
The SA became effective for all audits relating to accounting periods commencing on or after
April 1, 1996.
1.5.11 SA 300 (Revised): Planning an Audit of Financial Statements-This Standard on Auditing
(SA) deals with the auditor’s responsibility to plan an audit of financial statements. As per this
SA the objective of the auditor is to plan the audit so that it will be performed in an effective
manner.
2008.
1.5.12 SA 315: Identifying and Assessing the Risks of Material Misstatement Through
Understanding the Entity and Its Environment-The Standard deals with the auditor’s responsibility to obtain an understanding of the entity and its environment and using that
understanding to identify and assess the risks of material misstatement at the financial
statement level and assertion level.
2008.
1.5.13 SA 320 (Revised): Materiality in Planning and Performing an Audit-SA 320 is a revised
version of the erstwhile Auditing and Assurance Standard (AAS) 13, “Audit Materiality” issued
by the Institute in 1997. The revised Standard deals with the auditor’s responsibility to apply
the concept of materiality in planning and performing an audit of financial statements. This SA
also deals with the requirements of determining materiality and performance materiality when
planning the audit, revision as the audit progresses and documentation requirements.
2010.
1.5.14 SA 330: The Auditor’s Responses to Assessed Risks-SA 330 is a new Standard on
Auditing which deals with the auditor’s responsibi lity to design and implement responses to
the risks of material misstatement identified and assessed by the auditor in accordance with
SA 315 at the financial statement level and assertion level. This SA also deals with the
aspects relating to overall responses to assessed risks, audit procedures responsive to the
assessed risks of material misstatement at the assertion level, adequacy of presentation and disclosure, evaluating the sufficiency and appropriateness of audit evidence and
documentation requirements.
2008.

Relating to Entities Using Service Organisations” issued by the Institute in 2002. The revised
Standard deals with the user auditor’s responsibility to obtain sufficient appropriate audit evidence when a user entity uses the services of one or more service organizations. SA 402
also deals with the aspects like obtaining an understanding of the services provided by a
service organisation, including internal control, responding to the assessed risks of material misstatement, Type 1 and Type 2 reports, fraud, non-compliance with laws and regulations
and uncorrected misstatements in relation to activities at the service organisation and
reporting by the user auditor.
2010.
1.5.16 SA 450: Evaluation of Misstatements Identified During the Audit-SA 450 is a new
Standard on Auditing which deals with the auditor’s responsibility to evaluate the effect of
identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements. SA 450 defines the terms “Misstatement” and “Uncorrected
misstatements”. This SA also deals with the aspects like accumulation of identified
misstatements, consideration of identified misstatements as the audit progresses,
communication and correction of misstatements, evaluating the effect of uncorrected
misstatements, written representation and documentation.
2010.
1.5.17 SA 500 (Revised): Audit Evidence-SA 500 is a revised version of the erstwhile Auditing
and Assurance Standard (AAS) 5, “Audit Evidence” issued by the Institute in 1988. The
revised Standard is quite detailed in terms of audit evidence in an audit of financial
statements, and deals with the auditor’s responsibility to design and perform audit procedures
to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on
which to base the auditor’s opinion. This SA also deals with the requirements of obtaining
sufficient appropriate audit evidence, how information to be used as audit evidence, how to
select items for testing to obtain audit evidence and procedures in case of inconsistency in, or
doubts over reliability of, audit evidence.
2009.
1.5.18 SA 501 (Revised): Audit Evidence—Specific Considerations for Selected Items-SA 501 is a revised version of the erstwhile Auditing and Assurance Standard (AAS) 34, “Audit
Evidence – Additional Considerations for Specific Items” issued by the Institute in 2005. The
revised Standard deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with SA 330, SA 500 (Revised) and other relevant
SAs, with respect to certain aspects of inventory, litigation and claims involving the entity, and
segment information in an audit of financial statements. Revised SA 501 also deals with the requirements and application of the aspects relating to inventory, litigation and claims and
segment information.
2010.
1.5.19 SA 505 (Revised): External Confirmations-SA 505 is a revised version of the erstwhile
Audit ing and Assurance Standard (AAS) 30, “External Confirmations” issued by the Institute in
2003. The revised Standard deals with the auditor’s use of external confirmation procedures to
obtain audit evidence in accordance with the requirements of SA 330. Revised SA 505 also deals with the requirements and application of the aspects relating to external confirmation
procedures, management’s refusal to allow the auditor to send a confirmation request, results
of the external confirmation procedures, negative confirmations and evaluating the evidence
obtained.
2010.
1.5.20 SA 510 (Revised): Initial Audit Engagements- Opening Balances-SA 510 is a revised
version of the erstwhile Auditing and Assurance Standard (AAS) 22, “Initial Engagements- Opening Balances” issued by the Institute in 2001. The revised Standard establishes the
principles regarding audit of opening balances in case of initial engagements, i.e., when the
financial statements are audited for the first time or when the financial statements for the
preceding period were audited by another auditor. This SA also deals with the audit
procedures and audit conclusions and reporting requirements in case of initial audit
engagements.
2010.
1.5.21 SA 520 (Revised): Analytical Procedures-SA 520 is a revised version of the erstwhile
Auditing and Assurance Standard (AAS) 14, “Analytical Procedures” issued by the Institute in
1997. The revised Standard deals with the auditor’s use of analytical procedures as
substantive procedures (“substantive analytical procedures”), and as procedures near the end
of the audit that assist the auditor when forming an overall conclusion on the financial
statements. Revised SA 520 also deals with the requirements and application of the aspects
relating to substantive analytical procedures, analytical procedures that assist when forming
an overall conclusion and investigating results of analytical procedures.
2010.
1.5.22 SA 530 (Revised): Audit Sampling-SA 530 is a revised version of the erstwhile Auditing and Assurance Standard (AAS) 15, “Audit Sampling” issued by the Institute in 1998. The
revised Standard applies when the auditor has decided to use audit sampling in performing
audit procedures. It also deals with the auditor’s use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of
details, and evaluating the results from the sample. This SA also deals with the requirements
relating to sample design, size and selection of items for testing, performing audit procedures, nature and cause of deviations and misstatements, projecting misstatements and evaluating

2009.
1.5.23 SA 540 (Revised): Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures- SA 540 is a revised version of the erstwhile Auditing and
Assurance Standard (AAS) 18, “Audit of Accounting Estimates” issued by the Institute in 2000.
The revised Standard deals with the auditor’s responsibilities regarding accounting estimates, including fair value accounting estimates, and related disclosures in an audit of financial
statements. Specifically, it expands on how SA 315 and SA 330 and other SAs are to be
applied in relation to accounting estimates. It also includes requirements and guidance on misstatements of individual accounting estimates, and indicators of possible management
bias. Considering the application of Ind AS/ IFRS in times to come and resulting estimates to
made, this Standard assumes special significance for the auditors
2009.
1.5.24 SA 550 (Revised): Related Parties-SA 550 is a revised version of the erstwhile Auditing
and Assurance Standard (AAS) 23, “Related Parties” issued by the Institute in 2001. The
revised Standard deals with the auditor’s responsibilities regarding related party relationship
and transactions when performing an audit of financial statements. This standard also deals
with the risk assessment procedures and related activities, identification and assessment of
the risks of material misstatement associated with related party relationships and transactions,
responses to the risks of material misstatement associated with related party relationships and
transactions and evaluation of the accounting for and disclosure of identified related party
relationships and transactions etc.
2010.
1.5.25 SA 560 (Revised): Subsequent Events-SA 560 is a revised version of the erstwhile
Auditing and Assurance Standard (AAS) 19, “Subsequent Events” issued by the Institute in
2000. The revised Standard deals with the auditor’s responsibilities relating to subsequent
events in an audit of financial statements. SA 560 also deals with the events occurring
between the date of the financial statements and the date of the auditor’s report, facts which
become known to the auditor after the date of the auditor’s report but before the date the financial statements are issued and facts which become known to the auditor after the
financial statements have been issued.
2009.
1.5.26 SA 570 (Revised) Going Concern-SA 570 is a revised version of the erstwhile Auditing and Assurance Standard (AAS) 16, “Going Concern” issued by the Institute in 1998. The
revised Standard is quite detailed in terms of auditor’s responsibility in the audit of financial
statements with respect to management’s use of the going concern assumption in the preparation and presentation of the financial statements. SA 570 requires the auditor to

management’s assessment that may cast significant doubt on the entity’s ability to continue as
a going concern. SA 570 also deals with the requirements of risk assessment procedures and related activities, evaluating management’s assessment, additional procedures, audit
conclusions and reporting, use of going concern assumption etc. The standard also discusses
the principles when mitigating factors are present vis-à-vis Going Concern of the enterprise.
2009.
1.5.27 SA 580 (Revised): Written Representations-SA 580 is a revised version of the erstwhile
Audit ing and Assurance Standard (AAS) 11, “Representations by Management” issued by the
Institute in 1996. The revised Standard is quite detailed in terms of the duties and objectives of the auditors regarding the acknowledgement by the management that it is fulfilling its
responsibility relating to preparation and presentation of financial statements and internal
controls, the various forms of management representations, situations where management representations are unreliable or where the management refuses to provide requested
representations.
2009.
1.5.28 SA 600 (Revised) : Using the Work of Another Auditor - This SA discusses the
procedures to be applied in situations where an independent auditor reporting on the financial
statements of an entity, uses the work of an independent auditor with respect to the financial
statements of one or more divisions or branches included in the financial statement of the
entity. The Statement also discusses the principal auditor's responsibility in relation to his use
of the work of other auditor. This Standard becomes operative for all audits relating to
accounting periods beginning on or after April 1, 1995.
When the principal auditor uses the work of another auditor, the principal auditor should
determine how the work of the other auditor will affect the audit.
The auditor should consider whether the auditor's own participation is sufficient to be able to
act as the principal auditor.
When planning to use the work of another auditor, the principal auditor should consider the
professional competence of the other auditor in the context of specific assignment if the other
auditor is not a member of the Institute of Chartered Accountants of India.
The principal auditor should perform procedures to obtain sufficient appropriate audit
evidence, that the work of the other auditor is adequate for the principal auditor's purposes, in
the context of the specific assignment.
The principal auditor should consider the significant findings of the other auditor.
There should be sufficient liaison between the principal auditor and the other auditor.
The other auditor, knowing the context in which his work is to be used by the principal auditor,
should co-ordinate with the principal auditor.

When the principal auditor concludes, based on his procedures, that the work of the other
auditor cannot be used and the principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the
other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion
because there is a limitation on the scope of audit.
When the principal auditor has to base his opinion on the financial information of the entity as a whole relying upon the statements and reports of the other auditors, his report should state
clearly the division of responsibility for the financial information of the entity by indicating the
extent to which the financial information of components audited by the other auditors have been included in the financial information of the entity, e.g., the number of divisions/
branches/subsidiaries or other components audited by other auditors.
1.5.29 SA 610: Using the work of Internal Auditors: SA 610 is a revised version of the
erstwhile Auditing and Assurance Standard (AAS) 7, “Relying Upon the Work of an Internal Auditor” issued by the Institute in 1989. The revised Standard deals with the external auditor’s
responsibilities regarding the work of internal auditors. This SA also defines the terms “Internal
audit function” and “Internal auditors”. SA 610 also deals with the aspects like determining
whether and to what extent to use the work of the internal auditors, using specific work of the
internal auditors and documentation.
2010.
1.5.30 SA 620 (Revised): Using the Work of an Auditor’s Expert-SA 620 is a revised version of
the erstwhile Auditing and Assurance Standard (AAS) 9 “Using the Work of An Expert” issued
by the Institute in 1991. The revised Standard deals with the auditor’s responsibilities
regarding the use of an individual or organisation’s work in a field of expertise other than
accounting or auditing, when that work is used to assist the auditor in obtaining sufficient
appropriate audit evidence. Revised SA 620 also deals with the requirements and application
of the aspects relating to determining the need for an auditor’s expert, nature, timing and
extent of audit procedures, the competence, capabilities and objectivity of the auditor’s expert,
obtaining an understanding of the field of expertise of the auditor’s expert, agreement with the
auditor’s expert, evaluating the adequacy of the auditor’s expert’s and reference to the auditor’s expert in the auditor’s report. This standard should be read in conjunction with SA
500 because Expert’s opinion also serves as audit evidence in appropriate cases.
2010.
1.5.31 SA 700 (Revised): Forming an Opinion and Reporting on Financial Statements-SA 700 is a revised version of the erstwhile Auditing and Assurance Standard (AAS) 28, “The
Auditor’s Report on Financial Statements” issued by the Institute in 2003. The revised
Standard deals with the auditor’s responsibilities to form an opinion on the financial statements and the form and content of the auditor’s report issued as a result of an audit of
financial statements. Revised SA 700 also deals with the requirements relating to forming an
opinion on the financial statements, form of opinion, auditor’s report, supplementary

aspects. Appendix to revised SA 700 also contains the Illustrative Formats of Auditors’
Reports on Financial Statements.
This SA is effective for audits of financial statements for periods beginning on or after April 1, 2011.
1.5.32 SA 705 : Modifications to the Opinion in the Independent Auditor’s Report. This
Standard on Auditing (SA) deals with the auditor’s responsibility to issue an appropriate report
in circumstances when, in forming an opinion in accordance with SA 700 (Revised), the
auditor concludes that a modification to the auditor’s opinion on the financial statements is
necessary. The objective of the auditor is to express clearly an appropriately modified opinion
on the financial statements that are necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the financial
statements as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement.
2011.
1.5.33 SA 706: Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report -It deals with additional communication in the auditor’s report
when the auditor considers it necessary to: Draw users’ attention to a matter or matters
presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements; or Draw users’ attention to
any matter or matters other than those presented or disclosed in the financial statements that
are relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report. Other Standards on Auditing (SAs) may contain specific requirements for the auditor to
include Emphasis of Matter paragraphs or Other Matter paragraphs in the auditor’s report. In
those circumstances, the requirements in this SA regarding the form and placement of such
paragraphs apply. The objective of the auditor, having formed an opinion on the financial
statements, is to draw users’ attention, when in the auditor’s judgment it is necessary to do so,
by way of clear additional communication in the auditor’s report, to:
(a) A matter, although appropriately presented or disclosed in the financial statements, that
is of such importance that it is fundamental to users’ understanding of the financial
statements; or
(b) As appropriate, any other matter that is relevant to users’ understanding of the audit, the
auditor’s responsibilities or the auditor’s report.
2011.
1.5.34 SA 710 (Revised): Comparative Information—Corresponding Figures and Comparative
Financial Statements-SA 710 is a revised version of the erstwhile Auditing and Assurance
Standard (AAS) 25, “Comparatives” issued by the Institute in 2002. The revised Standard
deals with the auditor’s responsibilities regarding comparative information in an audit of
financial statements. This SA defines the terms ‘Corresponding figures’, ‘Comparative

information’ and ‘Comparative financial statements’. Revised SA 710 also deals with the
requirements and application of the aspects relating to audit procedures and audit reporting relating to Corresponding Figures and Comparative Financial Statements. Appendix to revised
SA 710 contains the ‘Example of Auditors’ Reports’.
2011.
1.5.35 SA 720: The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements-This Standard on Auditing (SA) deals with the
auditor’s responsibility regarding other information in documents containing audited financial
statements and the auditor’s report thereon. As per SA 720 the objective of the auditor is to respond appropriately when documents containing audited financial statements and the
auditor’s report thereon include other information that could undermine the credibility of those
financial statements and the auditor’s report. This SA also deals with the requirements related
to reading other information, material inconsistencies and material misstatements of fact.
2010.
1.5.36 SA 800: Special Considerations—Audits of Financial Statements Prepared in
Accordance with Special Purpose Frameworks- This SA deals with special considerations in
the application of those SAs to an audit of financial statements prepared in accordance with a
special purpose framework. It does not override the requirements of the other SAs; nor does it
purport to deal with all special considerations that may be relevant in the circumstances of the
engagement. The objective of the auditor, when applying SAs in an audit of financial
statements prepared in accordance with a special purpose framework, is to address
appropriately the special considerations that are relevant to:
(a) The acceptance of the engagement;
(b) The planning and performance of that engagement; and
(c) Forming an opinion and reporting on the financial statements.
2011.
1.5.37 SA 805: Special Considerations—Audits of Single Financial Statements and Specific
Elements, Accounts or Items of a Financial Statement-This SA deals with special
considerations in the application of those SAs to an audit of a single financial statement or of a
specific element, account or item of a financial statement. The single financial statement or
the specific element, account or item of a financial statement may be prepared in accordance
with a general or special purpose framework. If prepared in accordance with a special purpose framework, SA 800 also applies to the audit. It does not apply to the report of a component
auditor, issued as a result of work performed on the financial information of a component at
the request of a group engagement team for purposes of an audit of group financial statements. Further it does not override the requirements of the other SAs; nor does it purport

engagement. The objective of the auditor, when applying SAs in an audit of a single financial
statement or of a specific element, account or item of a financial statement, is to address
appropriately the special considerations that are relevant to:
(a) The acceptance of the engagement;
(b) The planning and performance of that engagement; and
(c) Forming an opinion and reporting on the single financial statement or on the specific
element, account or item of a financial statement.
This SA is effective for audits of single financial statements or of specific elements, accounts
or items for periods beginning on or after April 1, 2011. In the case of audits of single financial statements or of specific elements, accounts or items of a financial statement prepared as at a
specific date, this SA is effective for audits of such information prepared as at a date on or
after April 1, 2011.
1.5.38 SA 810 : Engagements to Report on Summary Financial Statements- This SA deals with the auditor’s responsibilities when undertaking an engagement to report on summary financial statements derived from financial statements audited in accordance with SAs by that same auditor. The objectives of the auditor are to:
(a) Determine whether it is appropriate to accept the engagement to report on summary financial statements;
(b) Form an opinion on the summary financial statements based on an evaluation of the conclusions drawn from the evidence obtained; and
(c) Express clearly that opinion through a written report that also describes the basis for that opinion.
The auditor shall, ordinarily, accept an engagement to report on summary financial statements in accordance with this SA only when the auditor has been engaged to conduct an audit in accordance with SAs of the financial statements from which the summary financial statements are derived.
Before accepting an engagement to report on summary financial statements, the auditor shall
(a) Determine whether the applied criteria are acceptable;
(b) Obtain the agreement of management that it acknowledges and understands its responsibility:
i. For the preparation of the summary financial statements in accordance with the applied criteria;
ii. To make the audited financial statements available to the intended users of the summary financial statements without undue difficulty (or, if law or regulation provides that the audited financial statements need not be made available to the intended users of the summary financial statements and establishes the criteria for the preparation of the summary financial statements, to describe that law or regulation in the summary financial statements); and

document that contains the summary financial statements and that indicates that the auditor has reported on them.
(c) Agree with management the form of opinion to be expressed on the summary financial statements.
If the auditor concludes that the applied criteria are unacceptable or is unable to obtain the agreement of management set out above, the auditor shall not accept the engagement to report on the summary financial statements, unless required by law or regulation to do so. An engagement conducted in accordance with such law or regulation does not comply with this SA. Accordingly, the auditor’s report on the summary financial statements shall not indicate that the engagement was conducted in accordance with this SA. The auditor shall include appropriate reference to this fact in the terms of the engagement. The auditor shall also determine the effect that this may have on the engagement to audit the financial statements from which the summary financial statements are derived.
This SA is effective for engagements for periods beginning on or after April 1, 2011.
1.5.39 SRE 2400: Engagements to Review Financial Statements – The purpose of this
Standard on Review Engagements (SRE) is to establish standards and provide guidance on
the practitioner’s2 professional responsibilities when a practitioner, who is not the auditor of an
entity, undertakes an engagement to review financial statements and on the form and content
of the report that the practitioner issues in connection with such a review. A practitioner, who
is the auditor of the entity, engaged to perform a review of interim financial information
perform